Sometimes, hefty dividend yields are really too good to be true, as the firm behind the swollen yield looks to consider trimming by more than half. Undoubtedly, whether we’re talking about the telecom dividend cuts that have been the talk of the town among TSX Index-focused dividend investors or what remains of the super-high-yielders as stocks march higher and yields begin to, on average, gravitate just a bit lower.
Either way, accidentally high-yielding stocks or shares of companies that only possess above-average yields due to substantial capital depreciation ought to come with a warning label, at least in my view.
Sure, it’s true that investors would be getting a price of admission at a lower price. But for those who will only bail once a dividend reduction (by 50% or maybe a bit more) hits, I’d argue that it’s best not to get involved in the first place. Instead, settling for a sustainable dividend payer that has more room to grow could make a whole lot more sense, especially as the economy faces a new slate of challenges in the latter half of the year.
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Rogers Communications
In this piece, we’ll give Rogers Communications (TSX:RCI.B), which currently yields 4.1% at the time of this writing, a bit of a closer look. Undoubtedly, Rogers has never really had the same sky-high dividend yield that its peers in the Big Six telecoms possessed.
With its two telecom rivals slashing theirs closer to 5–6%, questions linger as to whether Rogers was right all along to offer a modest, but still enticing dividend while ensuring more than enough financial wiggle room to pursue other endeavours and, perhaps most importantly, not break the hearts of income-oriented investors who may have been drawn in by the “accidentally high” yields of the likes of some of the fallen telecom plays.
Now that rival yields have fallen back to Earth, Rogers’ payout suddenly looks vastly more competitive. Though it is still around a full percentage point and a half lower than that of its peers, which were recently forced to reduce their payouts amid unprecedented industry challenges.
Deep value
Now, Rogers is facing all the same industry challenges, but with less anxiety about whether or not the dividend would be reduced. As a long-time laggard, now down around 33% from its all-time highs hit all the way back in 2022, I do think that Rogers is one of the least-loved dividend payers out there. But with a price-to-earnings (P/E) multiple of 4.3 times, I do understand the deep-value case.
Add the magnificent sports assets into the equation (one of the only good parts about the media business, it seems), as well as the low expectations bar and durable dividend, and I’m inclined to view Rogers Communications as perhaps the new best telecom pick of Canada’s Big Three, even as pricing pressures look to persist indefinitely while the rise of space connectivity brings forth questions about whether or not cell towers can still maintain their competitive edge.
The bottom line
While the dividend and value seem too good to be true, I’d be more inclined to view the payout as the best-covered of the Big Six, even after recent dividend reductions by rivals. With a fantastic sports media moat and the means to cut costs across the board, thanks in part to AI, I do think that Rogers has what it takes to grow its payout at a time when its two top rivals are cutting into theirs.
Rogers’ dividend isn’t just more than safe amid industry pressures; it’s got room to run, and for that reason, shares look like a great buy right here.
